Call This Deflation?

So money-supply growth of 18% plus consumer prices inflation half-as-great
again as the official target now equals deflation. Right...?

OH HORRORS! "Deflation hits UK economy for first time since 1960," screams The
Telegraph. "UK falls into deflation for first time in 50 years," wails The
Times.

"Inflation sinks into negative territory on steep fall in the cost of household
bills," gasps what used to be Fleet Street. "New phase heralds a fall in wages
and freeze in pensions," or so "experts warn" according to Wapping.

That freeze in pensions and wages will in fact prove much worse than the stand-firsts
imply, however. Because as ever, behind the headlines - and far from the news-desks
as well - the true picture of Britain's new-found "deflation" is a long way
from clear. It's also a long way from anything like true deflation.

You see, down in the devilish detail, blaming "deflation" for the Bank of
England's record-low interest rates is now getting tough. Such historic accommodation
can only be explained, instead, as a blatant attempt to reflate the housing
market and also refloat the City, making it whole at savers' expense.

The commercial banks are now printing money, earning 8% and more between
deposit and lending rates. And thanks to the national deflation scare - played
up so hard on today's release of official inflation data - the banks can also
borrow from the Old Lady almost 2.5% below the official Consumer Price inflation
rate, while paying barely 0.6% per year to cash ISA savers.

The upshot? Just as in the 1970s, these negative real rates of interest are
proving rotten for cash savers, but good for Gold
Investment. Because the opportunity cost of holding metal - otherwise known
as the lost interest you could have earned on paper - has been entirely removed.

Indeed, consumer price inflation - the Bank of England's mandated target -
has now overshot the 2.0% bulls-eye in 32 of the last 36 months. Even the old
Retail Price Index - apparently slipping into deflation this March, down 0.4%
from a year before to fall into the red for the first time in five decades
- continues in fact to rise, and rise strongly, once the more knocked-about
and politicized items in the official data agency's shopping basket are removed.

Excluding mortgage-interest repayments (slashed by the Bank of England in
its own deflation scare) together with indirect taxes such as VAT (cut by the
Treasury in its debt-fed stimulus binge), the RPI rose in March at 3.2% year-on-year.
That was half-as-fast again as the last decade's average rate. Thus deposit-account
savers thus lost fully 3 pence in the pound of their purchasing power.

And all amid "deflation" remember...deflation which apparently coincides with
19% year-on-year growth in the money supply - and which is otherwise known,
in a boring old technical sense, rather than a headline-grabbing shudder, as "inflation".

The gold price in Sterling, in contrast, stands 35% higher for UK investors
from this time last year. And here at BullionVault,
we guess Gold's appeal
will only keep growing until the real returns paid to cash turn sharply higher.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.